Finances 'critical' PM says in new warning

24 September 2007, PARIS (AFP) - French Prime Minister Francois Fillon warned Monday that the country's public finances were in a "critical" state and need drastic action to reduce worrying deficits.

24 September 2007

PARIS (AFP) - French Prime Minister Francois Fillon warned Monday that the country's public finances were in a "critical" state and need drastic action to reduce worrying deficits.

Fillon urged France to "change its attitude" towards state spending two days before his centre-right government presents its 2008 draft budget, which is expected to show a deficit of 41.5 billion euros (58.5 billion dollars).

It was the second time in three times that he has sounded the alarm. On Friday, the prime minister said France was in a "situation of bankruptcy". That prompted an angry row, with even some government supporters saying the phrase was excessive.

Speaking on RTL radio, Fillon stepped just short of repeating the "bankruptcy" statement, but said that "with 1,150 billion euros of accumulated deficit at the end of 2006 ... the situation is no longer sustainable."

"Any businessman, any parent, any farmer can comprehend that it is impossible to keep borrowing in order to pay for day-to-day running costs," the prime minister said.

"France is a rich country, which happily has the resources to allow it to look to the future. But the state is in a critical situation ... We are facing a breakdown of the system.

"The reality is that the French must radically change their attitude towards public finances," he said.

Speaking to Corsican farmers on Friday, Fillon dismissed their calls for government subsidies, arguing that "I am at the head of a country that has been in chronic deficit for 15 years ... and has not voted a balanced budget in 25 years."

His tough talk won support from Jean-Claude Trichet, president of the European Central Bank (ECB), who said that "French public finances are in very great difficulty. It is a fact ... and the prime minister is probably right to point it out."

Finance Minister Christine Lagarde told Les Echos newspaper that the word 'bankrupcty' "has the merit of making people sit up and think," and there was support too from Le Monde newspaper, which in a weekend editorial welcomed Fillon's "language of truth."

"Mr Fillon is right to be alarmed ... The worsening state of our public accounts irritates our European neighbours, who believe France should show greater austerity. They are watching us with a close eye," it said.

But opposition Socialists said the budget had been aggravated by President Nicolas Sarkozy's tax cuts -- voted through after his May election -- which is estimated to cost between 11 and 16 billion euros a year.

Former centre-right prime minister Jean-Pierre Raffarin said the use of the word 'bankruptcy' was "clumsy and inexact ... France is not bankrupt. It has much wealth, but it is too heavily in debt."

Fillon's blunt language has prompted speculation that he is impatient with the pace of reform, and feels thwarted by Sarkozy's reluctance to move faster. Rumours of a rift between the two were denied by Sarkozy in an interview last week, when he described their views as "interchangeable."

Sarkozy's presidency has hit its first choppy waters in recent weeks thanks to the worsening state of the public coffers.

The government continues to bank on a growth figure of 2.25 percent for 2007, but this has been revised downwards to 1.8 percent by the Organisation for Economic Cooperation and Development. According to Les Echos, the annual cost of financing France's public debt now amounts to two-thirds of income tax receipts.

On Monday the government was to present its social security budget, which is separate from the general budget. This is expected to include a deficit of 12 billion euros for 2007, and 8.9 billion euros for next year.